Last week, I mused that after getting a nearly 100% rise in share price at one point last Thursday, it would be a good time for Dendreon (Nasdaq: DNDN) to do a dilutive financing and to take advantage of its high share price.
The press release that Dendreon issued last week, and which bumped up shares, offered no substantive news. It was the sort of thing that development-stage biotechs with a high percentage of retail investors like to announce right before going hat in hand to institutional investors to raise money.
The stock spiked on the announcement that showing a survival benefit in its ongoing phase 3 study for lead drug Provenge would probably be enough for FDA regulatory approval (something many investors already knew). And less than two business days after that news, Dendreon said that an up to $100 million convertible debt offering is in the works.
Dendreon needs the cash, and it was only a matter of time as to when it would do the offering. By doing its convertible debt offering now rather than waiting until after the interim results of the IMPACT/D9902b study come out next year, might Dendreon be signaling to investors that it thinks shares are overvalued at today's price? I gave my opinion on this issue when I wrote:
Compared to other biopharmas with oncology compounds in similar stages of development, shares of Dendreon appear at least $150 million overvalued on a relative basis with its $750 million market cap after this run-up in price yesterday.
Shares are down somewhat since then, but still have further to fall until I think they are fairly valued on a relative basis. Furthermore, Dendreon has a completely unproven treatment modality, and Provenge is most likely four years away from the market, if at all. That the biotech can fetch a market cap nearly two-thirds that of GPC Biotech (Nasdaq: GPCB), despite the strong odds that GPC has the next prostate cancer compound to gain marketing approval in the U.S. later this year, shows that something is just not jibing with Dendreon's valuation and reality.
Investors who fail to pay attention to relative valuations of the different stocks in the development-stage biotech space do so at their own peril. Dendreon's CEO and two board members sold a combined amount of stock worth over $4 million immediately after the positive advisory panel vote and before the approvable letter. This, combined with the company issuing debt at today's prices, should give investors a good idea of what Dendreon's leadership thinks its shares are worth.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.
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